2/12/2009 @ 7:23PM

Details On The Deal

WASHINGTON, D.C.–Congressional Democrats have put the finishing touches on a $789.5 billion stimulus bill and lawmakers will begin voting on it Friday.

It’s all but certain to pass and will likely reach President Obama’s desk by Monday, despite that fact that Republicans roundly decry it as a long-term spending bill that does little to create jobs immediately.

For businesses, the stimulus bill is a murky mix of handouts and tax breaks. First, the bad news: The biggest firms, which provide the vast majority of corporate income tax, don’t get an expansion of the so-called net operating loss “carryback,” designed to allow firms to record losses in previously profitable years.

Currently firms are allowed to record their losses during the previous two tax years. The compromise bill permits only companies with $15 million in gross revenues to account for the losses five years back. That’s particularly bad news for big manufacturers and homebuilders who have been hammered by the downturn.

Many firms had already planned on taking the tax break. “We had a large number of clients who were very far down the road of having their taxes prepared,” says Clint Stretch, a tax expert at Deloitte Tax.

Congress’ Joint Committee on Taxation estimated businesses would have saved $67.5 billion in the first two years (and paid slightly higher taxes in later years) with the provision. But its $19.5 billion price tag over the next decade apparently deterred lawmakers intent on paring back the stimulus bill to under $800 billion.

There’s still plenty of good news for businesses, however. On the tax side, the stimulus contains an expansion of bonus depreciation, allowing investments in new equipment to be depreciated at a quicker rate for 2009 as well as in 2008. Over the next two years, the measure is expected to help businesses reduce their taxes by a total of $38 billion.

Also surviving is a provision that allows businesses to buy back their own debt. Under current law, if a company repurchases its own debt at a discount it must pay taxes on the difference between the original debt and the discounted rate. The new legislation will allow companies to gradually recognize the income over five years instead of all at once.

And while government spending has been pared back in many areas, there are other incentives for businesses, particularly in clean energy and broadband deployment–signature issues of the Obama administration.

It includes $20 billion in tax incentives for renewable energy, as well as a two to three year extension of the so-called “production tax credit” for wind, hydropower and other clean energy sources. The legislation also contains a $1.6 billion manufacturing tax credit to encourage companies to invest in renewable energy production.

For autos, the bill expands (in incremental amounts) a $2,500 tax credit for people who buy plug-in hybrid electric vehicles. The provision is expected to cost about $2 billion. There’s also $7.2 billion to extend broadband production.

Other items in the massive bill include a $70 billion “patch” to prevent the Alternative Minimum Tax from encroaching on millions of families and a tax credit of up to $400 for individuals ($800 for families) who make $100,000 or less. The administration originally wanted this credit to be $500 for individuals and $1,000 for families.

To be sure, there are still some big cuts in the stimulus bill. The final legislation includes $54 billion in aid to states for education and other services–about $25 billion less than lawmakers in the House wanted. Also reduced is a tax credit of up to $15,000 for home buyers; it’s now $8,000. An amendment that allows auto buyers to deduct sales and excise taxes from vehicle purchases has been pared back from $11 billion to $1.7 billion.

The U.S. Chamber of Commerce, the country’s biggest business organization, supports the stimulus bill, despite its flaws. According to Bruce Josten, the Chamber’s top lobbyist, the group is “disappointed” by the size of the carryback expansion, but “the whole is more important than the individual parts.”

“The global economy is in uncharted and dangerous waters and inaction from Washington is not an option,” Josten says.

Throughout the negotiations over the stimulus bill, only three Republicans on Capitol Hill–Senate moderates Susan Collins and Olympia Snowe of Maine, and Arlen Specter of Pennsylvania–agreed to support the plan. When the legislation comes up for a final vote, GOP opposition is still likely to be strong.

House Republican Leader John Boehner, R-Ohio, calls it “the trillion-dollar spending bill that stressed-out taxpayers feared it would be,” after hundreds of billions of dollars in interest are factored in.

Nonetheless, Democrats are confident it will create at least 3.5 million jobs within the next two years. “We will be accountable for this,” House Speaker Nancy Pelosi, D-Calif., told reporters in a press conference Thursday afternoon.

If the stimulus doesn’t create millions of jobs by 2010–the next congressional election year–those could be famous last words.